Are strategic fuel reserves relevant?
Energy is one of the major factors required for economic growth. Energy is required to drive productive plant, machinery and equipment and motor vehicles, among other things. Any interruption in energy supply has devastating implications on any economy, regardless of its level of development. Liquid fuel is one of the many sources of energy in use today.
Malawi, a land-locked country, uses ports in Mozambique and Tanzania for its liquid fuel imports. This poses the risk of supply interruptions in the event of adverse domestic developments in the two countries which can disrupt supply.
The country’s heavy dependence on agriculture for its economic performance has, from time to time, exposed its soft under belly within days due to intermittent fuel supplies arising out of seasonal foreign currency inflows. More often than not, Malawi’s oil supply challenges have been due to domestic causes. Memories of the recent fuel crisis (due to foreign exchange shortages) are still fresh in most motorists’ minds.
In the past, the Mozambican civil war dealt a near fatal blow on the country’s economy. To assist the country to have an alternative access route to the sea, the Northern Corridor was opened. The Dar es Salaam, Mbeya, Chilumba and Chipoka depots were all on the corridor for fuel imports using rail, water and road. An engineering ingenuity, indeed!
The country currently has capacity to store fuel that will meet about 15 days’ requirement, excluding fuel on wheels and rail siding. Clearly, a small mishap on the supply chain, fuelled by speculative buying on the local market, immediately sends shock waves into the economy. A recent example is the bridge wash away in Tanzania which sent the country’s oil stock levels tumbling to low levels.
According to Section 5.3.2(c) of the Malawi Energy Policy of 2003, one of Government’s objectives of Liquid Fuels and Gas Supply Industry Reforms is to ensure the security of fuel supply by expanding fuel storage capacity to 90 days cover (i.e. 30 days maintained by commercial operators and 60 days maintained by government).
In December, 2010, Government registered the National Oil Company Limited (Nocma). One of Nocma’s mandates is to manage a strategic fuel reserve facility in accordance with government’s approved strategic fuel reserve (SFR) management plan. Similar companies in the Sadc region are Zimbabwe’s Sakunda, Mozambique’s Petromoc and South Africa’s PetroSA, just to mention a few. These companies have graduated beyond managing storage reserves to exploration, trading and retailing. Interestingly, some of these countries produce oil and have excellent port facilities.
Having been registered at the peak of the fuel crisis, many citizens saw no wisdom in the move. ‘How can one think of saving when they cannot satisfy current consumption?’ Malawians were often heard asking. A valid question, considering the country’s liquid fuel supply situation at the time!
In Malawi, SFRs have often been looked at in the same light as Strategic Grain Reserves (SGRs) or water storage tanks operated by major water boards. A fair comparison, but only to the extent that the purpose is to discharge when required by the market. However, raw water is in abundant supply in the country and maize grain can be produced even beyond national requirements, within a few months. In extreme circumstances, maize can be imported from neighbouring countries within days. On the contrary, liquid fuel is mostly produced in the Middle East and other distant countries. Under normal circumstances, a minimum of 60 days is required to procure and deliver oil at the ports.
Government borrowed funds from the Export and Import Bank of India for, among other things, the construction of SFRs which, when commissioned, will have a capacity of 60 days consumption, thus taking the country’s total storage capacity to 75 days’ consumption. This essentially means that the economy will be cushioned against short-term internal and external shocks to oil supplies. Construction of reserve tanks is currently under construction in the country’s three major cities.
So, are SFRs relevant to Malawi? The answer is a big YES! The country needs SFRs to ensure security of supply of oil for economic and social development.n
—The writer is a Chartered Management Accountant and is the Director of Finance and Administration of the National Oil Company of Malawi Limited (NOCMA). He is writing in his personal capacity.
Feedback:
